November 7, 2009
Strategies for Equity Trading
Knowing market trading strategies is a requirement for any person who wishes to invest in equity shares. This is primarily because one needs to adopt a particular strategy in order to focus on the type and amount of involvement levels he can offer. One’s understanding of business is highly necessary too, without which an investment may be left without direction.
There are certain universal and simple strategies such as examining the technical status report of at least a hundred large-cap stocks. For this, one should know how to summarize the technical state with the help of the traditional analysis as well as the propriety statistical analysis. Evaluation of shares is done in two ways, each determining the long term and short term prices. The classic evaluation drives long-term share prices. The point of using technical analysis as a strategy is not to predict or time the market, but to get a good hold of facts and enhance one’s intuitive understanding of the market. This way, the investor knows about all his trade and is prepared to face the impending profit or loss.
While strategizing one’s market investments, one should be aware that losses are very much a part of trading. The aim should be not to avoid losses altogether, but to create a good ratio between profits and losses such that the profits are always at least a good three times more than the losses. Therefore, it is pointless to play it safe by putting one’s money in a stock which is not moving.
Although one knows that one has to identify the point at which trade has gained highest momentum and pull the money out at the time, just before market decelerates. This is obtained by investing in shares that are only just breaking out of consolidation, and money is flowing into the stock due to volume expansion.
One major key point to be noted is that one should never invest in a hurry or out of habit, or out of sheer boredom. This may result in no gain or poor gain and eventually a loss of trading confidence. It is highly important that one keeps a specific time frame for investing. This way, it helps position sizing and a grip on when to quit trade with maximum profit.
There are several types of trading based on different and sometimes similar trading strategies. This varies from individual to individual’s interests. Trend Trading is based on research and collecting facts and constant touch with progress of the companies concerned. Penny Stock Trading is low-priced security trading with low market capitalization. Shorting Stocks enables one to make a profit during market decline; it is less preferred due to lack of regulation. Gap trading is a strategy in which investment is done at level of extremes, while stocks reverse to fill the gap between the extremes. Also, high dividend producing stocks and exchange funds are supposed to generate a steady income and this type of investment is known as Income Stock Trading Strategy.